There are many ways to cut your monthly expenses, such as refinancing your car loan and becoming aware of your spending patterns. Reducing your monthly bills can help you save more money, pay off debt and reach your financial goals. Here are five ways to get started.
Identify your monthly bills
If you don’t know where your money goes each month, you’re not alone. A recent survey found that 65% of Americans have no idea what they spent last month. So, the first step is to become aware of your spending so you can identify expenses to cut.
Common monthly bills include:
- Rent or mortgage payments
- Car payments
- Credit cards and other debts
Create a budget
A budget is a powerful tool to help you cut down on your monthly bills. A budget helps you become aware of the money you have coming in (income) and the money you have going out (expenses).
Many people think that a budget is more complicated than it is. However, a budget can be as simple as listing out your income and monthly bills on a sheet of paper. If you’re unsure of your expenses, you can start with estimates and refine them over time.
Once you have the list, simply subtract your expenses from your income to get an idea of where things stand. If the number is positive, you are spending within your means, and if the number is negative, you are spending more than you are taking in.
Track your spending
Tracking spending allows you to compare your budget estimates with your actual spending. For example, you might have estimated spending $600 a month on groceries. But after reviewing your expenditures at the end of the month, you realize you actually spent $1200 on groceries — double the amount. No wonder why your budget didn’t work!
There are different ways to track your spending — the key is to do some trial and error to find the best method for you. For example, you can use an app like MINT that syncs your bank account and automatically organizes your expenses. Or, if you prefer a more old-fashioned approach, a pen and paper or a simple Excel spreadsheet are just as effective.
Plan your meals ahead of time
Groceries are likely your largest monthly bill after housing and debt payments. Making a plan for your meals is an easy way to save on food expenses each month. If you don’t have a plan when you go to the grocery store, you’re more likely to make impulse purchases.
Before your next grocery run, take a few minutes to plan out your breakfast, lunches, and dinners for the next week and make a list of the ingredients needed for each meal. This technique might sound simple, but it works.
Refinance your debt
Refinancing your debt is one of the fastest ways to lower your monthly bills. For example, refinancing your auto loan can help reduce your car payments. Consider refinancing if you are struggling to keep up with your monthly bills, want to reduce the interest rate on your loan, or want to change from a variable to a fixed loan. However, it should noted that refinancing comes with potential downsides such as origination fees and paying out more money over the lifetime of the loan as the term length may be extended.
The bottom line
Cutting your monthly bills is necessary to gain control over your finances. Becoming aware of your spending, creating a budget, and refinancing your car loan are ways to reduce monthly bills and reach financial stability.